7 ETF Investing Strategies

Learn How to Invest in ETFs to Your Best Advantage

Including exchange traded funds in your investing strategy might be the way to go if you're looking to diversify your portfolio or increase market exposure. Here are some of their advantages and considerations so you can make sure an ETF works for you.

Risk Management

Seven ETF Investing Strategies.
Seven ETF Investing Strategies. HYB

Portfolios that have exposure to certain market sectors can purchase or short sell an ETF in that particular sector to hedge against risk. Investors can counter risk by taking the opposite position with the correlating ETF.

International Exposure

Investors can gain exposure to international markets that show potential growth with the purchase of a foreign ETF that follows the index for a particular country. In some cases, international exposure can be achieved by including foreign currency ETFs in a portfolio. Here's some more information on foreign ETFs to help with your investing strategy.

Industry Exposure

For certain industries that show potential growth or even a decline, an investor can purchase industry ETFs that follow the indexes for those particular market sectors. This allows an investor to gain exposure to an industry as a whole without having to corner the market on all the related stocks of a sector, or at least on the major players.

Cash Flow Utilization

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Extra money can be put to use by purchasing short-term ETFs during periods of excess cash flow so there's always an opportunity for earning a potential return. During periods of cash flow deficit, ETFs can be easily liquefied with one single trade.

Price Discrepancy

There can be price differences among an index and its derivative contracts, such as futures and options, due to volatile market conditions like currency and interest rates. The buy or sell of an ETF can take advantage of the arbitrage opportunity when it's calculated correctly, but it's a difficult strategy to utilize.

Management Transitions

The accountability of a portfolio will change hands when fund and portfolio managers change positions or leave financial firms. The purchase or sale of a short-term ETF can help bridge that transition period in order to compensate for any risk exposure.

Market Analysis

An investor can utilize various ETF trading strategies to take advantage of certain forecasts after conducting a thorough analysis. If an analyst has confidence in the overall market but is bearish on a particular sector, a combination of ETFs can help take advantage of this information. He can purchase an ETF that tracks the broad market while selling an ETF in the particular sector that will underperform.

The Possibilities Are Abundant

With the ETF market growing so rapidly, the trading strategies at your disposal are limited only by your own ingenuity. There are even some great ways to use ETFs as part of your earnings season investment strategy. Note: Always consult with a financial professional for the most up-to-date information and trends. This article is not investment advice and it is not intended as investment advice.